DSR misses out in the Capacity Market

Following the Capacity Market Early Auction last week, Head of Technology Jim Marshall discusses the results and what it means for the market.

Last week, National Grid ran the Capacity Market Early Auction to secure capacity for winter 2017.

The auction cleared at the lower-than-expected price of £6.95/kW, with contracts awarded for 54GW of capacity. This means the total cost of securing supply for next winter will be £378 million.

(Our Pricing Team will be presenting our latest forecasts for non-commodity costs on retail customer bills next week - register for the webinar here.)

The majority of the contracts were awarded to existing generators, mostly hydrocarbon technologies such Combined Cycle Gas Turbine (22GW) and coal/biomass (10.4GW). EDF also secured a 7.8GW contract for existing nuclear plant.

Majority of flexibility priced out this time

Disappointingly, this auction has overwhelmingly favoured existing projects from the types of technologies we should be moving away from, rather than the flexible DSR capacity that is crucial to our new energy system.

Almost 13GW of DSR capacity had pre-qualified for the auction, which could have seen almost a quarter of the requirement being met by curtailment and load-shifting. However, the low price squeezed out many aggregators, including ourselves.

Some aggregators managed to accommodate the low price, with 166MW of unproven DSR and 43MW of proven DSR securing contracts.

What’s next for DSR?

The Transitional Arrangements auction, which is exclusively for turn-down DSR capacity, is scheduled for 22nd March. This is the last opportunity this year for the grid to secure flexible capacity for winter 2017.

This auction aims to secure 300MW of capacity and early price expectations are also quite low following last week’s surprising result. We have pre-qualified 100MW for this auction for customers that can curtail their demand in peak times.

Options outside the Capacity Market

While we are positive about the upcoming TA auction, we are also focused on other opportunities for businesses that can provide DSR.

Balancing services and the wholesale market can still provide significant revenues for flexibility, so we would urge businesses to keep pushing forward with establishing their DSR capability.

There are also cost-savings to be made on non-commodity costs by shifting consumption out of peak times. Our recent analysis showed that these savings could be in the region of £15,000 for businesses with 250kW of capacity - read more here.

We will be continuing to share information via our blog and webinars about DSR revenue streams, but please get in touch if you would like to discuss anything specific.